Financing the Business

Section 14 deals with options for financing a new business. The ability to secure financing is intrinsic to developing a business. Whether it is debt or equity financing, entrepreneurs need to understand the costs, benefits and risks of the financing they choose. A summary of government programs that may be a source of financing for food processors is provided.
The Food & Beverage Processing in Manitoba Reference Manual (Third Edition, 2017) provides a more detailed discussion on debt financing options and different approaches to raising financing using public sector programs and private sector institutions.


There are two basic forms of financing:

  • Debt Financing
  • Equity Financing

Debt Financing

With debt financing a lender does not assume any ownership in the business. Instead fixed amounts of repayment and interest are required.

Debt financing is useful in:

  • Meeting short-term or seasonal deficits in the cash-flow (e.g. with an operating loan)
  • Financing lower-risk projects where the cash surpluses will be available in time to meet payment obligations

Equity Financing

The money that is invested in the company that is not debt is considered equity financing. Equity financing usually results in the investor gaining some ownership in the business. The investment is not repaid unless the company redeems the capital or the shares are sold; however, a dividend might be paid to the equity capital holders.

Equity financing does result in dilution of the ownership of the company.  Therefore, it is advisable to select the investors carefully.

Equity financing is appropriate for:

  • Large projects that require additional time and expertise
  • High-risk ventures where it might be too costly to obtain a loan
  • Companies that are growing rapidly and constantly need additional financing

Types of Equity Financing

Common Shares

  • The controlling shares of a corporation
  • Carry the right to attend shareholder meetings and to vote
  • Earn dividends

Preferred Shares

  • Represents partial ownership of the company
  • Preferential right to repayment over common shares
  • No right to vote at shareholder meetings
  • Can be redeemed by the company

Debt and Equity Combinations

Some specialty lenders and equity investors will offer terms that can combine a combination of equity and debt. For example, they may reduce the interest rate well below what would be normal for a loan, and offer flexible repayment timing, in return for gaining a portion of the net income or increase in value of the business.


When approaching an institution for financing, a company must have a financial business plan outlining the company and its requirements.  Before approving a loan, banks need to be assured that the owner and the business meet specific credit criteria.  These are sometimes referred to as the 7 C's of credit:

  • Character - one's personal and business credit ratings are important
  • Capability -  the ability and willingness to repay the loan; past record will be considered
  • Capital -  debt-to-equity ratio of the proposal there a lot of debt?
  • Circumstances -  analysis of the particular industry, business competition, and product / target markets one is trying to enter
  • Coverage - will the money be protected should something happen to the business, therefore, net income relative to the payments and the insurance coverage is very important
  • Cash Flow - is the projected cash flow healthy and does it include all relevant costs and expenses
  • Collateral - review of the value of the assets that are being offered as security to repay the loan if the business fails

Potential sources of financing for Manitoba food and beverage businesses include Canada’s major banks and credit unions. Additionally, there are financiers that will finance specific accounts receivable (often referred to as factoring), asset based lenders that will provide term loans for specific pieces of high value equipment and some forms of leases create the equivalent of debt obligations.

In addition, there are several government departments and private sector groups that provide program support to companies that are innovative:

Western Economic Diversification Canada (WD) supports innovative businesses, especially if they are strategic to an industry sector.


Canada Small Business Loan Financing Program. Innovation, Science and Economic Development Canada (ISED) assists new and existing small businesses to obtain intermediate term loans to help finance specific fixed asset needs.


Export Development Canada provides Canadian exporters with financing, insurance and bonding services as well as foreign market expertise.


Business Development Bank of Canada (BDC) helps create and develop Canadian businesses through financing, growth and transition capital, venture capital and consulting services, with a focus on small and medium-sized enterprises.


Farm Credit Canada (FCC) is Canada’s leading farm and agri-business lender.


National Aboriginal Capital Corporations Association (NACCA) is a network of Aboriginal Financial Institutions (AFIs) dedicated to stimulating economic growth for Canada’s Aboriginal peoples by promoting and underwriting Aboriginal business development.


Venture Capital Firms provide financing for companies in exchange for an equity position in the company (often a majority position) as well as taking an active role in management. These firms can be accessed through the Canadian Venture Capital Private Equity Association.


Business Start Program is a loan guarantee program with an educational component. Loans to new owner-managed businesses are provided through participating financial institutions and guaranteed by the Manitoba government.


Other Government Funding 

There are numerous support programs and services that help all sizes of food and beverage processors. For the most up-to-date information, check the Canada Business Network about grants and financing.